Suppose Tefco Corp. has a value of $179 million if it continues to operate, but has outstanding
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Suppose Tefco Corp. has a value of $179 million if it continues to operate, but has outstanding debt of $181 million that is now due. If the firm declares bankruptcy, bankruptcy costs will equal $11 million, and the remaining $168 million will go to creditors. Instead of declaring bankruptcy, management proposes to exchange the firm’s debt for a fraction of its equity in a workout. What is the minimum fraction of the firm’s equity that management would need to offer to creditors for the workout to be successful?
Related Book For
Fundamentals of Investments Valuation and Management
ISBN: 978-0077283292
5th edition
Authors: Bradford D. Jordan, Thomas W. Miller
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